- 10-year US T-bond yield drops more than 2%on Friday.
- Wall Street suffers heavy losses amid risk aversion.
- US Dollar Index drops below 98 in the NA session.
The selling pressure surrounding the USD/JPY pair remained intact in the NA session with the risk aversion intensifying following Wall Street’s negative start to the day. As of writing, the pair was losing nearly 100 pips on the day at 108.60.
Heightened geopolitical tensions amid the ongoing trade conflict between the U.S. and China and fears over Trump administration jeopardizing the USMCA deal by imposing tariffs on Mexican imports hurt the market sentiment on Friday. The 10-year U.S. Treasury bond yield, which is seen as a reliable gauge of the market’s risk perception, lost more than 2% and fell to its lowest level since September of 2017.
Pressured by the flight-to-safety, major equity indexes in the U.S. started the day in the negative territory and failed to make a meaningful recovery. As of writing, the Dow Jones Industrial Average and the S&P 500 were both down around 1% on a daily basis.
Earlier today, the data published by the U.S. Bureau of Economic Analysis showed that the core PCE Price Index, the Fed’s favourite measure of inflation, rose to 1.6% 1.6% on a yearly basis in April but couldn’t help the greenback.
After spending a large portion of the day above the 98 mark, the US Dollar Index lost its traction as Trump administration’s reckless trade policy is expected to force the Fed to make a dovish shift in its policy stance to counter the potential risk of a recession. In fact, JPMorgan in a recently published analysis said that they were now expecting the Fed to cut rates by 25 basis points in September and December. As of writing, the DXY was down 0.3% on a daily basis at 97.85.
Technical levels to watch for
The initial support for the pair could be seen at 108.50 (Jan. 31 low) ahead of 108 (psychological level/Jan. 14 low) and 107.75 (Jan. 10 low). On the upside, resistances are located at 109.60 (daily high/20-DMA), 110 (psychological level) and 110.65 (May 21 high).